Encana Oil & Gas (USA) Inc., a wholly owned subsidiary of Encana Corp., has agreed to sell its Haynesville natural gas assets in northern Louisiana to GEP Haynesville LLC, a joint venture formed by GeoSouthern Haynesville LP and funds managed by Blackstone Group LP’s GSO Capital Partners LP, for $850 million. The deal, effective Jan. 1, is expected to close in the fourth quarter.
The assets include 112,000 net acres of leasehold primarily in DeSoto and Red River Parishes—plus additional fee mineral lands—where Encana operates 300 wells. Estimated yearend 2014 proved reserves were 720 bcf of gas equivalent.
As part of the deal, Encana will reduce its gathering and midstream commitments, which will be substantially complete through 2020, through the transfer of current and future obligations. The company also will transport and market GeoSouthern’s Haynesville production on a fee-for-service basis over the next 5 years.
Encana plans to use the total cash consideration to reduce its net debt. During the first half, the assets produced an average of 217 MMcfd, contributing 9% to companywide production and fewer than 2.5% to Encana’s first-half operating cash flow, excluding hedges.
“By further focusing our portfolio, we are making Encana more efficient as we proceed through the second half of 2015 and into 2016,” explained Doug Suttles, Encana president and chief executive officer.
More than 80% of the company’s capital for the year will be invested in the Permian, Eagle Ford, Duvernay, and Montney (OGJ Online, Dec. 16, 2014). Late last year, Encana acquired Fort Worth-based Athlon Energy Inc. for $7.1 billion, taking on 140,000 net acres in the Permian with production of 32,000 boe/d (OGJ Online, Nov. 13, 2014). The company at the time said it planned to invest a minimum of $1 billion in the basin to move from four to at least seven horizontal rigs by yearend 2015.
The company in the second quarter booked a $1.3-billion impairment charge, attributing it to a decline in oil and gas reserves values due to of lower commodity prices (OGJ Online, July 27, 2015). Overall Encana reported a second-quarter loss of $1.6 billion.